Swiss banks see hope for tax probe deals after Wegelin demise

* Wegelin plea could open way to broader U.S. solution

* Settlement quicker, fine lower than many expected

* Wegelin the only Swiss bank to be indicted in U.S.

By Martin de Sa'Pinto and Katharina Bart

ZURICH, Jan 4 Swiss banks are whispering a
silent prayer that the deal between private banker Wegelin & Co
and Washington over tax dodging could smoothe the way to cheaper
and faster settlements of their own cases with U.S. authorities.

Wegelin will shut its doors permanently after admitting on
Thursday it conspired for nearly a decade to help Americans
evade taxes and agreeing to pay $57.8 million in restitution and
fines, a much smaller penalty than expected.

Otto Bruderer, a managing partner at Wegelin, said in court
the bank knew its conduct was wrong.

"As the only bank to be indicted and strike a deal, the
question is now whether Wegelin's settlement can be used as a
basis for others," said Daniel Senn, a Zurich-based partner at
accounting firm KPMG.

"The expectation among Wegelin's competitors will be that
this is a step forward, and not a blow.

"Uncertainty is the worst possible of situations for private
banks, and I believe Wegelin's competitors will be immensely
relieved the Sword of Damocles has been removed and their own
negotiations can begin moving forward constructively."

The United States has been pursuing tax dodgers through a
combination of pressure on offshore havens such as Switzerland
and amnesty programs at home.

Swiss banking, government and legal sources expressed relief
that the Wegelin settlement came quicker than expected and that
the fine was lower than many had feared.

Some said it removed a major obstacle to negotiations
between U.S. authorities and other banks caught up in the tax
probe, which include Credit Suisse and Julius Baer
.

These sources said the United States has indicated it will
not indict another bank as long as negotiations continue, adding
that U.S. tax authorities may have seen Wegelin as a trophy
target.

While Wegelin's guilty plea was an epitaph for Switzerland's
oldest bank, the scale of the punishment set a possible
benchmark for at least 10 other banks being probed in a U.S.
crackdown on tax evasion, bankers and lawyers said.

"Financially, Wegelin fared relatively well. Following the
UBS case, Wegelin knew it was committing an offence, so you
could have expected them to be punished much more severely,"
said one banker who declined to be named as his bank is also
being probed.

"You could read the relatively mild rate as indicative that
the U.S. wants to make an agreement palatable to Swiss banks."

Switzerland's State Secretariat for International Financial
Matters said negotiations between the United States and
Switzerland for an industry-wide settlement were continuing but
declined to comment on the Wegelin plea.

Credit Suisse and Julius Baer both declined to comment on
the matter.

FRESH IMPETUS

The dispute between U.S. officials and Swiss banks has been
simmering since 2009, when a UBS tax evasion
settlement embroiled a dozen of its rivals.

Ben Jones, a corporate tax lawyer at global law firm
Eversheds in London, said the fall of Wegelin "sends a powerful
message to the Swiss banking community that the U.S. is
committed to tackling tax evasion and has the economic and
political power to effectively extend the boundaries of its
national legal system to non-U.S. businesses and citizens."

Switzerland, buffeted by attacks on its vaunted banking
secrecy, is eager to remove the taint from its financial
industry, and talks with U.S. officials could gain fresh impetus
from the Wegelin deal.

But one legal expert said Wegelin partner Bruderer may have
thrown a spanner into the works.

In his address to the court, Bruderer said his bank believed
it could not be prosecuted in the United States because it had
no branches there, and because it believed its conduct was
common in Swiss banking.

Peter Kunz, a law professor at the University of Bern, said
those remarks could complicate the position of other banks.

"I wouldn't be surprised if U.S. politicians take these
comments as a pretext to hold public hearings, such as the ones
over UBS and tax evasion," he told Reuters via email.

"I believe the U.S. could use Wegelin's comments as
something of a key witness against Switzerland and Swiss banks,
making an industry-wide settlement less likely to happen, or
more onerous for Switzerland when it does."

But others said that the indictment of Wegelin had acted as
a roadblock to negotiations which needed to be removed before
U.S. and Swiss authorities and the banks could focus fully on
reaching a deal.

"I see this step as very positive because it shows the
Gordian knot can be disentangled: this means negotiations with
the U.S. and the other banks involved can move forward," said
Senn.

Wegelin was seen as a case apart because it appeared
wilfully to antagonise U.S. authorities by soliciting money
flowing out of UBS after its settlement of U.S. tax evasion
charges.

"Wegelin openly flaunted what they were doing in front of
the U.S. authorities, as if to say 'you can't get us'. Well,
actually, they did," said another private banker who asked not
to be named.

Dec 8 McDonald's Corp said on Thursday
it would move its international tax base to the United Kingdom
from Luxembourg after coming under increased scrutiny from
European Union regulators over its tax arrangements in the small
country.

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